NEWS

Argos under fire for move to squeeze suppliers over Chinese Yuan revaluation

Published on: 11th September 2015

Attempts to persuade companies to reduce prices have been branded as naive by toy companies.

Argos has written to suppliers in an attempt to persuade them that the retailers should be benefiting from the recent revaluation of the Chinese Yuan. The letter asks them to submit proposals on “how best to align pricing to current market conditions.”

Unsurprisingly, the move has not been welcomed by the supplier community. Toy World has received numerous calls on the subject, all of them making similar points. A common theme is the ongoing reluctance of all major retailers to accept price increases, and the volatility of the currency markets in the medium term. One supplier commented: “Once a price has dropped, it would be near impossible to raise it, especially using the reverse argument that our exchanges rates were not as favourable.” Another pointed out: “This has been tried before, when the dollar rate went to $1.60. We were told by a number of retailers that as we were benefitting, they should too. Then of course the rate tanked to $1.20, so it was just as well no-one gave anything when asked.”

Suppliers have also pointed out that the timescales involved in quoting prices negate such a request. One supplier suggested: “It shows their lack of understanding of the market and how far ahead we work if they think we can just go to factory and expect the prices to drop immediately.” Another commented: “Suppliers have already had to commit to pricing for spring summer 2016 and anything could happen between now and then.”

Perhaps the over-riding concern of every supplier we spoke to was the naïve and totally one-sided nature of the move. One supplier summed it up by saying: “I would say it’s a feeling of frustration for the battle we’ve had over the last four or five years to maintain prices with an ever strengthening RMB. This is an extreme example of cherry- picking information to suit their own needs. They’re not willing to listen when it comes to constant labour cost increases or the strengthening of the RMB, but when there’s a slight weakening in the currency they pounce on it. I wonder if they considered the 19% increase in minimum wages in the Guangdong province when doing their sums? Although, that would be impossible for them to calculate as they almost certainly have little comprehension of how labour intensive certain products are to produce.”

Although every supplier we spoke to insisted they would not be acceding to the request, it seems inevitable that some suppliers will feel pressured into at least entering into a dialogue. Otherwise, presumably retailers would not make approaches like this in the first place.